Presentation on Basic knowledge of accounting

Md Rezaul Haq ACA

Associate Director
Islam Aftab Kamrul & Co.
Chartered Accountants
 Contents of Presentation

1. Basic
Accounting
Principles

2. Complete
6. Concepts of
set of financial
types of cost
statements

Contents

5. Revenue
3. Element of
expenditure Vs
financial
Capital
statements
expenditure

4. Accounting
equation

2
1. Basic Accounting Principles
 Concepts and Conventions-Study Manual

1 2 2 3 4 5

Fair Going Accrual Consistency Materiality

Presentation Concern Basis of of
Accounting presentation
Concepts and Conventions-Study Manual ( Cont. 2)

6 7 2 8 4 5

Offsetting The The

Business Historical
Entity Cost
Concept Convention
 Basic understanding

Fair Presentation Preparation of General-Purpose

FS as per IFRS & IAS

Going Concern The entity is viewed as continuing

in operation for the foreseeable
future

Accrual Basis of Accounting Elements of FS should be recorded

in the period in which it relate not
based on cash payments or receipts
Materiality Each material class of similar item
should be presented separately
 Basic understanding

Offsetting Elements of FS should be presented

separately. Offsetting is permitted if
it is allowed in IFRS and immaterial.

Business Entity Concept Business is a separate entity distinct

from its owner and manager

Consistency of presentation Presentation of items f FS should be

consistent from one period to another

Historical cost convention Transactions are recorded at their cost

when they occured
2. Complete set of financial statements
3. Element of financial statements
Elements of Financial Statements
Statement of financial position

Liabilities
Assets &
Equity
Credit

Debit
FS

Credit
Debit

Expenses Incomes

Statement of financial performance

Definitions of Asset, Liability, Income Expense
4. Accounting Equation
 Accounting Equation

Owner’s
Assets Liability
Equity

Income

Statement
Income
Expenses
The Accounting Equation

Assets = Liabilities + Owner’s Equity

The resources
owned by a
business
The Accounting Equation

Assets = Liabilities + Owner’s Equity

The rights of the

creditors, which
represent debts
of the business
The Accounting Equation

Assets = Liabilities + Owner’s Equity

The rights of the

owners
 Assets = Owner’s Equity

Cash = Radiah, Capital

a. 25,000,000 25,000,000
Investment by Radiah

a. Radiah deposits 25,000,000 in a bank

account in the name of Radiah PLC
 (in Taka 000)

Assets = Owner’s Equity

Cash + Land Radiah’s, Capital
Bal. 25,000 = 25,000
b. –20,000 +20,000
Bal. 5,000 20,000 25,000

b. Radiah exchanged 20,000,000 for land.

 (in Taka 000)
Owner’s
Assets = Liabilities + Equity
Accounts Cinta Cita,
Cash + Supplies + Land Payable Capital
=
Bal. 5,000 20,000 25,000
c. +1,350 +1,350
Bal. 5,000 1,350 20,000 1,350 25,000
c. During the month, Radiah PLC purchased
supplies for 1,350,000 and agreed to pay
the supplier in the near future (on
account).
(in Taka 000)
Assets

Cash + Supplies + Land

Bal. 5,000 1,350 20,000
d. +7,500
Bal. 12,500 1,350 20,000

d. Radiah PLC provided services to

customers, earning fees of 7,500,000
and received the amount in cash.
(in Taka 000)

Liabilities + Owner’s Equity

Accounts Cinta Cita, Fees
Payable + Capital + Earned
1,350 25,000 Bal.
+7,500 d.
1,350 25,000 7,500 Bal.
d. Radiah PLC provided services to
customers, earning fees of
Taka7,500,000 and received the amount
in cash.
 (in Taka 000)
Assets
Cash + Supplies + Land
Bal. 12,500 1,350 20,000
e. –3,650
Bal. 8,850 1,350 20,000

e. Radiah PLC paid the following

expenses: wages, 2,125,000; rent,
800,000; utilities, 450,000; and
miscellaneous, 275,000.
 (in Taka000)

Liabilities + Owner’s Equity

Accounts Cinta Cita, Fees Wages Rent Utilities Misc.
Payable + Capital + Earned Expense Expense Expense Expense
1,350 25,000 7,500
–2,125 –800 –450 –275 e.
1,350 25,000 7,500 –2,125 –800 –450 –275

e. Radiah PLC paid the following expenses:

wages, 2,125,000; rent, 800,000; utilities,
450,000; and miscellaneous, 275,000.
(in Taka 000)

Assets
Cash + Supplies + Land
Bal. 8,850 1,350 20,000
f. –950
Bal. 7,900 1,350 20,000

f. Radiah PLC paid 950,000 to

creditors during the month.
 (in Taka 000)

Liabilities + Owner’s Equity

Accounts Cinta Cita, Fees Wages Rent Utilities Misc.
Payable + Capital + Earned Expense Expense Expense Expense
1,350 25,000 7,500 –2,125 –800 –450 –275
–950 f.
400 25,000 7,500 –2,125 –800 –450 –275

f. Radiah paid 950,000 to creditors

during the month.
5. Revenue Expenditure Vs Capital Expenditure
 Revenue Expenditure Vs Capital Expenditure

1 2
Capital expenditures are
typically one-time large Revenue expenditures are the
purchases of fixed assets that ongoing operating expenses,
will be used for revenue which are short-term expenses
generation over a longer used to run the daily business
period operations.
Examples of Capital Expenditures Examples of Revenue Expenditures

❖ Purchase of factories and buildings ❖ All expenses incurred in the ordinary conduct of business
(e.g., rent, salaries, wages, free samples, advertising costs,
❖ Purchase of machines, furniture, motor vehicles, or office and so on)
equipment
❖ Expenses incurred by way of repairs, renewals, and
❖ Cost of goodwill, trademarks, patents, copyrights, and replacement for the purpose of maintaining existing fixed
designs assets
❖ Expenditure on installation of plant and machinery and ❖ Cost of merchandise bought for resale
other office equipment
❖ Cost of raw materials and stores purchased for
❖ Additions or extension of existing fixed assets manufacturing
❖ Structural improvement or alterations to fixed assets that ❖ Wages paid to manufacture products for sale
increase their lifetime or earning capacity
❖ Depreciation of assets used in business
❖ Preliminary expenses of a limited company
❖ Interest on business loans
❖ Cost of issue of shares and debentures
❖ Freight and cartage paid on merchandise purchased
❖ Legal expenses on loans and mortgages
❖ Cost of oil to lubricate machinery
❖ Interest on capital during construction periods
❖ Vehicle servicing
❖ Development expenses (e.g., for mines and plantations)
❖ Any expenditures incurred in defending lawsuits relating
to the sale or purchase of merchandise
6. Concepts of types of cost
 Concepts of types of cost

Indirect
Direct Cost
Costs

1. Raw Material Purchased 1. Administrative cost

for production

2. Production related salaries 2. Selling and

and wages Distribution cost

3. Depreciation of machinery 3. Finance cost